The stock market has raced ahead since its major correction in March 2020. The U.S. economy has recovered steadily and has been delivering positive data over the past three quarters. In fact, domestic GDP registered a 6.4% annual growth in the first quarter of 2021, marking its second-fastest pace for growth since 2003. Among other favorable economic data, consumer spending is steadily returning to pre-pandemic levels, thanks to the fiscal stimulus packages, a better-than-anticipated mass vaccination drive, and steady job growth.
This improving economic health has translated into solid market momentum. All three major indexes have hit multiple highs over the past year and have continued to rise this year. Notably, the S&P 500 has returned 38.5% over the period. However, Wall Street has also been subjected to extreme volatility over the past few months. Amid this environment, many investors have turned to exchange traded funds (ETFs) because their broad and diversified exposure to securities helps them mitigate risk related to volatility and generate stable returns.
As such, iShares Core S&P Small-Cap ETF (IJR), Financial Select Sector SPDR Fund (XLF), Vanguard Small-Cap Value ETF (VBR) and Industrial Select Sector SPDR Fund (XLI) have delivered market-beating returns over the past year. So, let us review if these popular ETFs can maintain their momentum going forward because the market is expected to remain under pressure in the coming months due to the rising inflation concerns.
iShares Core S&P Small-Cap ETF (IJR)
IJR seeks to track the S&P SmallCap 600 index–a market-cap-weighted index of small-cap names selected by the S&P Committee. Notably, the index represents approximately 3% of the publicly available market. While most investors consider small-cap stocks highly risky investments, the theory behind betting on small-cap stocks is the growth factor in these securities. Furthermore, IJR also stands out from its peers in terms of good liquidity because it avoids the most illiquid small-cap names.
IJR has a BBB MSCI ESG Fund Rating based on a score of 4.57 out of 10. The ETF has $69.18 billion in AUM and a 0.06% expense ratio. The fund also pays a $1.04 annual dividend, yielding 0.94%.
The fund currently holds 690 companies, with its maximum exposure of 18% to the financial industry. This is followed by 17.8% and 16% exposure to the Industrials sector and the Consumer Discretionary space, respectively. The fund’s top three holdings are GameStop Corp (GME), Crocs, Inc (CROX) and Saia, Inc (SAIA).
IJR has returned 73.3% over the past year. With a 19.6% year-to-date gain, the ETF closed yesterday’s trading session at $109.92. The fund has witnessed $3.7 billion in net inflow over the past six months and is up more than 30% in the same period. IJR recently hit its 52-week high of $114.91 and is currently trading just 4.3% below it.
IJR’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall A rating, which translates to Strong Buy in our proprietary rating system. IJR also has an A grade for both Trade and Buy & Hold components. IJR is ranked #1 out of 56 ETFs in the B-rated Small Cap Blend ETFs group.
Beyond what we’ve stated above, we have also given IJR grades for Peer Component. Get all IJR’s ratings here.
Financial Select Sector SPDR Fund (XLF)
XLF is one of the most popular and efficient ETFs for financial exposure. The fund offers extremely liquid exposure to the heavyweights in the U.S. financial sector, which includes financial services, insurance, commercial banks, capital markets, mortgage finance, consumer finance, and real estate investment trusts. XLF’s investment objective is to provide investment results that correspond to the performance of the S&P Financial Select Sector Index, which is an effective representation of the S&P 500 indexes. financial sector .
XLF has an MSCI ESG Fund Rating of AA based on a score of 8.04 out of 10. The ETF has $44.43 billion in AUM and a 0.12%expense ratio. The fund pays a $0.59 annual dividend, yielding 1.59%.
The fund currently holds 65 companies, with Banks naturally leading the way with a 39.2% weighting, followed by 25.1% and 17% weightings in the Capital Markets and the Insurance sectors, respectively. The fund’s top three holdings are Berkshire Hathaway Inc. Class B (BRK.B), JPMorgan Chase & Co (JPM) and Bank of America Corp (BAC).
XLF has surged 68.6% over the past year. The ETF closed yesterday’s trading session at $37.21, rising more than 25% so far this year. The fund has generated $13.75 billion in net inflow over the past six months and has gained 36.9% in the same period. In fact, the ETF hit its 52-week high of $38.26 earlier this month and is currently trading just 2.7% below it.
XLF’s POWR Ratings reflect a promising outlook. XLF has an overall A rating, which equates to Strong Buy in our proprietary rating system. It further has a grade of A both Trade and Buy & Hold components. The ETF is ranked #1 of the 40 ETFs in the A-rated Financial Equities ETFs category.
Click here to check additional POWR Ratings for XLF (Peer Component).
Vanguard Small-Cap Value ETF (VBR)
VBR tracks the performance of the CRSP U.S. Small Cap Value Index by following a passively managed, full-replication approach, based on five value factors–book-to- price, forward-earnings-to-price, historic EPS, dividend-to-price and sales-to-price ratio. It’s true that small-cap stocks typically carry higher risk profiles than their mid- or large-cap counterparts, but the higher risk is compensated by the ability of many such stocks to deliver significantly higher returns.
VBR has a AA MSCI ESG Fund Rating based on a score of 8.04 out of 10. The fund has $24.17 billion in AUM, with a 0.07% expense ratio. The fund also pays an annual dividend of $2.63, yielding 1.53%.
VBR currently holds 943 companies, with a maximum exposure (21.8%)to the Financial industry. This is followed by 19.9% and 17.4% exposure to the Industrials sector and the Consumer Discretionary space, respectively. The top three holdings of the fund are IDEX Corp. (IEX), VICI Properties Inc. (VICI) and Devon Energy Corp. (DVN).
VBR has returned 71.8% over the past year. In fact, the ETF has gained 21% so far this year to close yesterday’s trading session at $172.11. The fund has attracted $2.75 billion in net inflow over the past six months and is up more than 30% in the same period. Also, VBR hit its 52-week high of $114.91 on May 10 and is currently trading just 3.7% below it.
It is no surprise that VBR has an overall A rating, which translates to Strong Buy in our POWR Ratings system. VBR also has an A grade for Trade and Buy & Hold components. Of the 21 ETFs in the B-rated Small Cap Value ETFs group, VBR is ranked #1.
In addition to the POWR Ratings grades just highlighted, one can view the VBR’s ratings for Peer Component here.
Industrial Select Sector SPDR Fund (XLI)
XLI seeks to provide broad exposure to the U.S. industrial sector. It seeks to replicate the investment results of the Industrial Select Sector Index, an effective representation of the S&P 500 Index’s industrial sector. The fund primarily invests in industry groups, such as capital goods, commercial & professional services, and transportation.
XLI has an A MSCI ESG Fund Rating based on a score of 6.23 out of 10. The ETF currently has AUM of $20.43 billion and a 0.12% expense ratio. The fund also pays an annual dividend of $1.27, which equates to a 1.24% yield.
In terms of exposure, VNQ is heavily weighted to the Machinery sector, with a 20% weighting. This is followed by 18.7% and 13.9% weightings to the Aerospace & Defense sectors and Industrial Conglomerates sector, respectively. The top three of 74 holdings by the fund are United Parcel Service Inc. (UPS), Honeywell International Inc. (HON) and Union Pacific Corporation (UNP).
XLI has returned 60.9% over the past year. The ETF has gained 15.8% so far this year to close yesterday’s trading session at $102.54. It has attracted $1.82 billion in net inflow in the past three months and is up 12.7% in the same period. Notably, the ETF hit its 52-week high of $106.81 earlier this month and is currently trading just 4% below it.
XLI’s POWR Ratings are consistent with its promising outlook. XLI has an overall A rating, which equates to Strong Buy in our proprietary rating system. Further, it has an A grade for both Trade and Buy & Hold components. It is ranked #1 out of 33 ETFs in the B-rated Industrials Equities ETFs group.
Click here to see the additional POWR Ratings for XLI (Peer Component).
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IJR shares were trading at $110.56 per share on Friday afternoon, up $0.64 (+0.58%). Year-to-date, IJR has gained 20.61%, versus a 11.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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